Risk and Reward in Commercial Real Estate
Commercial real estate is a terrific investment opportunity. From retail shops to residential developments, urban offices to industrial spaces, the lucrative possibilities are endless—but so are the risks.
“When you own a commercial enterprise, the exposures are significant,” says Ed Doyle, an independent Risk Consultant working with Purves Redmond Limited (PRL). “Protecting the assets of a commercial real estate enterprise is critical to the viability of the business. Each potential exposure must be identified and managed accordingly, with techniques designed to reduce the total cost of risk.
We recently sat down with Ed and Peter Duric, Real Estate Client Executive, at PRL. They explored the unique and challenging risks of commercial property ownership, and how to protect the viability of your business with the help of your broker.
Q: What are the most common mistakes commercial property owners make?
A: Ed says that the promise of profits can easily cloud an owner’s judgement. “Companies must pay proper attention to managing the exposures while increasing their real estate portfolio.”
Communication—or lack thereof—is also a frequent issue; growing businesses change rapidly, and many forget to keep their broker in the loop. “If you acquire a commercial property, you’ll want to have an appraiser assess the value and identify any additional exposures not addressed under your current policy.”
Q: What are the biggest commercial property exposures?
A: Property damage is the obvious one, “but it’s not just the brick-and-mortar,” says Peter. Aside from fire, water damage and other major dangers, there’s also the potential loss of rental income. “If your business can’t be up and running, what is that cost to you?”
There’s also general liability: prepare for common slips, trips and falls, but don’t forget about the actions of your employees. “Wrongful detainment, negligence and vicarious liability should be addressed in your policy.” says Ed.
Environmental concerns arising from new or historical pollution events (i.e., seepage, spill or migration of fuel oil) and cyber threats are other ways commercial owners can get hit hard.
Q: What loss prevention measures should every business owner take immediately?
A: We recommend implementing these strategies as soon as possible to mitigate the loss:
- Install fire and water/leak detection systems, connected so that authorities are notified right away
- Ensure tenants provide their own insurance documentation and provide staff safety training
- Securely manage and store all personal data from tenants, plus train staff on best practices for handling sensitive emails
- Install closed-circuit TV monitors, fill out maintenance logs and schedule regular inspections
“By doing these things, you’re taking a proactive role in managing your risk,” Says Peter. “When it comes time for renewal, your risk will be positioned in a more favourable light with the insurance underwriters.”
Q: What are the options for claims mitigation?
A: “When we’re in the heat of the moment, we make decisions that have significant financial impact on the organization,” says Ed. “One word or action can cost millions of dollars.”
To keep a situation from going from bad to worse, his advice is to ensure all incidents are reported in a timely, accurate manner, and that the owner proactively participates in the claim investigation. In addition, thorough safety and crisis management training will serve to minimize potential damage and avoid protracted litigation.
Q: What other critical considerations can a broker can help with?
A: Some owners can be tempted to cut corners to save a few dollars, but Peter says that working with a broker to make sure that assets are insured to proper value is the only way to be truly protected.
Endorsements are also especially useful for an evolving business. “We make sure that the policy is customized to the client’s needs,” says Peter.
The bottom line: PRL is a full-service commercial insurance provider that has helped businesses of all types and sizes across Canada. With their broad scope and deep international network, they’re able to provide a level of risk advisement that’s hard to find elsewhere.
“What really separates us is our commitment to clients from a servicing perspective,” says Peter. “We understand how to be a risk advisor to our clients—not just an insurance broker.”
Contact our coverage experts to learn more about insurance solutions in the Commercial Real Estate space:
Peter Duric, 647.957.2674, firstname.lastname@example.org
Deborah Young, 778.228.8479, email@example.com
Daniela La Riccia, 514.228-0419, firstname.lastname@example.org